ranger direct lending fund plc

78 Pages·2016·0.74 MB·English

(Registered No. 09510201)
RANGER DIRECT LENDING FUND PLC

Annual Report
For the period from 10 April 2015 to 31 December 2015
RANGER DIRECT LENDING FUND PLC
CONTENTS
Page
Overview and Investment Strategy 3-7
Chairman’s Statement 8
Investment Manager’s Report 9-10
Group Strategic Report 11-21
Corporate Governance Report 22-27
Audit Committee Report 28-30
Directors’ Remuneration Report 31-35
Directors’ Report 36-42
Statement of Directors’ Responsibilities 43
Independent Auditor’s Report 44-50
Consolidated and Company Statements of Financial Position 51
Consolidated and Company Statements of Comprehensive Income 52-53
Consolidated and Company Statements of Changes in Shareholders’ Equity 54-55
Consolidated and Company Statements of Cash Flows 56
Notes to the Consolidated Financial Statements 57-74
Alternative Investment Fund Managers Directive Disclosures (Unaudited) 75-76
Company Information 77
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RANGER DIRECT LENDING FUND PLC
OVERVIEW AND INVESTMENT STRATEGY
About Ranger Direct Lending Fund plc
Ranger Direct Lending Fund Plc (“Ranger” or the “Company”) was incorporated and registered in England and
Wales on 25 March 2015. This annual report for the period ended 31 December 2015 (the “Annual Report”)
includesthe results of Ranger Direct Lending Fund Trust (the “Trust”), in respect of which further details are set out
below.
The Company commenced operations on 1 May 2015 following its admission to the London Stock Exchange Main
Market (“Admission”). The Company has carried on business as an investment trust within the meaning of Chapter
4 of Part 24 of the Corporation Tax Act 2010.
On Admission, the Company had in issue 13,500,000 ordinary shares of £0.01 each (“Ordinary Shares”) in the
capital of the Company, which were allotted at an issue price of £10 per Ordinary Share. Since Admission, the
Company has been deploying the proceeds of the issue of the Ordinary Shares in a portfolio of Debt Instruments
(defined below) issued mainly by direct lending platforms (being businesses which serve as originators and/or
distributorsof Debt Instruments and which are not traditional retail or investment banks (“Direct Lending Platforms”))
in the United States of America (“US”). The portfolio comprisesDebtInstruments(held directly and indirectly)within
a diverse group of asset classes including real estate loans, invoice receivables, equipment finance, SME loans and
platform debt.
On 6 November 2015 the Company amended its first accounting reference date to 9 April 2015 to satisfy Section
837 of the Companies Act 2006 in order to facilitate its objective of paying its first quarterly dividend. The
Company’s accounting period was then changed from 9 April 2015 to 31 December 2015 to unify the accounting
period withthe Trust.
On 4 December 2015 the Company announced the allotment and issue of 1,348,650 Ordinary Shares
(representing 9.99% of the issued Ordinary Share capital of the Company) at a placing price of £10.45. The
allotment and issue of these shares was conditional, inter alia, upon funds managed by Invesco Asset Management
Limited receiving a waiver from the requirement under rule 9 of The City Code on Takeovers and Mergers for it to
make a mandatory offer to the holders of all the Ordinary Shares in the Company (the “Waiver”). The Waiver was
obtained and the Ordinary Shares were admitted to the premium segment of the Official List of the Financial
Conduct Authority (“FCA”), and to trading on the Main Market of the London Stock Exchange on 16 December
2015.
The Company’s investing activities have been delegated by the Board to the Investment Manager, Ranger
Alternative Management II, LP (the “Investment Manager”). Other administrative functions are contracted to external
service providers. However, the Directors retain responsibility for exercising overall control and supervision of the
Investment Manager and external service providers. The Company has no employees.
The Trust
In accordance with the Company's investment policy, the Company holds a number of its Debt Instrument
investments through the Trust. On establishment of the Trust, the Company was the depositor, managing holder
and sole beneficiary of the Trust. The Trust is a Delaware Trust established on 22 April 2015 pursuant to a
declaration of trust and trust agreement entered into between the Company as depositor and managing holder and
Delaware Trust Company (a Delaware state chartered trust company).Under the terms of the declaration of trust
and trust agreement that was entered into on establishment of the Trust, the Company is the sole beneficiary of the
Trust and also hasadministrative powers in respect of the Trust’s assets.
The Trust has no separate legal personality and is wholly transparent for UK tax purposes.
The Company and theTrust are collectively referred to in this report as the “Group”.
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RANGER DIRECT LENDING FUND PLC
OVERVIEW AND INVESTMENT STRATEGY continued
Investment Objective
The Company’s investment objective is to seek to provide shareholders with an attractive return, principally in the
form of quarterly income distributions, by acquiring a portfolio of debt obligations (such as loans, invoice receivables
and asset financing arrangements and which are together referred to as “Debt Instruments”) that have been
originated or issued by Direct Lending Platforms.
When selecting investments, the Investment Manager typically seeks to invest in Debt Instruments with average
targeted net annualised returns to the Company (excluding any leverage but including reserves for loan losses) of
12 to 13%of the principal amount invested.
In addition, while not forming part of its formal investment policy, and subject to (amongst others) applicable law,
market conditionsand the Company’s performance, the Directors intend to pay dividends on a quarterly basis and,
once fully invested and levered, target the payment of dividends which equate to a yield of 10%per annum on the
issue price per share at IPO1. The difference between 12 to 13%net annualised returns to the Company and the
targeted 10%per annum dividend to theShareholders is due to Company expenses and Investment Manager fees.
In addition,some leverage (not to exceed 50%) on the Company’s investments is expected to reach the targeted
10%annual dividend to shareholders.
Investment Policy
The Company invests, directly and indirectly, in a portfolio of Debt Instruments originated or issued by Direct
Lending Platforms.
The Debt Instruments to be acquired by the Company from Direct Lending Platforms will consist of debt obligations
within a range of asset class sub-categories which may include, but are not limited to, some or all of SME loans
(including alternative loan structures providing for the advance against and/or acquisition of future corporate trade
receivables of the borrower), real estate loans, consumer loans, invoice factoring, asset financing, speciality
financing and medical financing.
The Company will seek to purchase Debt Instruments directly from a Direct Lending Platform. However, the
Company may also indirectly participate in Debt Instruments including via:
● the acquisition of notes or other financial instruments that reference the returns of an identified Debt
Instrument or pool of Debt Instruments (or fractions thereof), in each case originated or issued by a Direct
Lending Platform;
● a syndicate investment alongside the Direct Lending Platform or other investors where the Direct Lending
Platform serves as lead creditor;
● pooled investment vehicles or investment funds which invest in Debt Instruments originated or issued by
Direct Lending Platforms and which are managed by the Investment Manager (or its affiliates), a Direct
Lending Platform or other third parties, in each case that the Company deems suitable with a view to
enhancing Shareholder returns and providing diversification of the Company’s assets.
The Company will generally only seek to participate or invest in pooled investment vehicles or investment funds
when:
● such investment enables the Company to participate in Debt Instruments that the Company either cannot
gain direct access to or could only gain direct access to on less favourable terms;
1The target dividend and the target net annualised return on investments are targets only and not a profit forecast. There can be no assurance
that the target dividend or target net annualised return on investments can or will be achieved from time to time and it shall not be seen as an
indication of the Company’s expected or actual results or returns. In particular, the target dividend assumes that the Company (or a member of
its group) will be able to agree terms for the provision of leverage in connection with the investments it makes and also assumes that investors
will hold theirOrdinaryShares as a long-term investment
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RANGER DIRECT LENDING FUND PLC
OVERVIEW AND INVESTMENT STRATEGY continued
Investment Policy continued
● such investment allows for a greater level of diversification than the Company could otherwise achieve; or
● the Company believes in good faith that such investment is in the best interest of the Shareholders.
Although the Company may invest in other investment funds that are managed by the Investment Manager or its
affiliates, these other investment funds will not be part of the Company’s group.
The Company’s investments in Debt Instruments or other indirect forms of investment in Debt Instruments may be
made through subsidiary special purpose vehicles (including, without limitation, trusts of which the Company is the
beneficiary) formed for that purpose by the Company.
The Company may also invest up to 10%of gross assets (in aggregate at the time of investment) in listed or unlisted
securities issued by a Direct Lending Platform, a Direct Lending Platform’s controlling entity or other organisations
serving the direct lending industry, which relate to the equity value or revenue of that entity and is not, for the
avoidance of doubt, a security issued for the purpose of providing an exposure to Debt Instruments (“Direct Lending
Company Equity”). This restriction shall not apply to any consideration paid by the Company for the issue to it of
any Direct Lending Company Equity that are convertible securities issued by a Direct Lending Platform. However,
it will apply to any consideration payable by the Company at the time of exercise of any such convertible securities
or any warrants issued by a Direct Lending Platform. The Company may invest in Direct Lending Company Equity
indirectly via other investment funds (including those managed by the Investment Manager or its affiliates).
The Company will invest across various Direct Lending Platforms and asset class sub-categories in order to ensure
diversification and to seek to mitigate concentration risks. The following investment limits and restrictions apply to
the Company, to ensure that the diversification of the Company’s portfolio is maintained and that concentration risk
is limited.
Investment restrictions – Debt Instruments
No single Debt Instrument structured as a term loan acquired by the Company will be for a term longer than 5 years.
No single Debt Instrument structured as a trade receivable asset acquired by the Company will be for a term longer
than 180 days.
The following restrictions apply, in each case at the time of investment by the Company:
● Debt Instruments that are attributable to a single asset class sub-category will not represent more than 25%
of gross assets;
● no single Debt Instrument shall exceed 2%of gross assets;
● no single Debt Instrument shall represent more than 20%of the gross assets allocated to the asset class sub-
category that the relevant Debt Instrument forms part of;
● aggregate investments in Debt Instruments originated through or issued by any single Direct Lending Platform
will not exceed 25%of gross assets; and
● Debt Instruments secured (directly or indirectly) by assets and/or personal guarantees shall not be less than
65%of the gross assets.
Each of the restrictions set out above shall, to the extent the Company invests in Debt Instruments indirectly
(whether through notes or other financial instruments that reference returns on Debt Instruments, pooled investment
vehicles investing in Debt Instruments or otherwise), be applied in respect of each of the Debt Instruments
underlying such indirect investment.
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RANGER DIRECT LENDING FUND PLC
OVERVIEW AND INVESTMENT STRATEGY continued
Investment Policy continued
Investment restrictions – Platforms and indirect investment vehicles
The following restrictions apply, in each case at the time of investment by the Company:
● no more than 25% of gross assets shall be invested in any single entity that issues notes or other financial
instruments which reference the returns of Debt Instruments; and
● no more than 25% of gross assets shall be invested any single pooled investment vehicle which holds a
portfolio of Debt Instruments.
Other restrictions
The Company may invest in cash, cash equivalents, money market instruments, money market funds, bonds,
commercial paper or other debt obligations with banks or other counterparties having single-A (or equivalent) or
higher credit rating as determined by an international recognised agency, or any “governmental and public
securities” (as defined for the purposes of the FCA rules) for cash management purposes with a view to enhancing
returns to Shareholders or mitigating credit exposure.
The Company will not invest in collateralised loan obligations or collateralised debt obligations.
Key Performance Indicators
The Company’s Key Performance Indicators (“KPIs”) and investment restrictions are described in Analysis of KPIs
and Investment Restrictions on pages18to20.
Financial Performance at a Glance
Highlights 31 Dec 2015
Net Asset Value2(Cum Income) per share GBP 10.463/USD 15.41
Net Asset Value2(Ex Income) per share GBP 10.233/USD 15.07
Total dividends per share GBP 8.36pence
Share Price4 GBP 10.253/USD 15.10
Actual return on the principal amount invested 9.36%
% of Capitaldeployed5 80.8%
Performance is in line with the Company’s objective to achieve 12 to 13% targeted net annualised returns on
investments to the Company. NAV growth is also in line with the expectation and the Companywill look to provide
Shareholders with progressively higher dividends as it achieves full deployment of its capital. The Company’s market
capitalisation as of 31 December 2015 was USD 224,249,509 (GBP 152,198,663at exchange rate of 1.473) based
on 14,848,650 outstandingOrdinaryShares.
Company Performance
May Jun Jul Aug Sept Oct Nov Dec Total
% NAVchange -0.17% 0.26% 0.18% 0.25% 0.40% 0.52% 0.45% 0.53% 2.45%
Return on Share
Price 4.30% 1.63% -0.71% 0.05% 0.66% -0.66% -1.23% -1.44% 2.50%
2Net Asset Value (“NAV”) is the value of all assets less any liabilities accounted for under IFRS and usually expressed as an amount per share
3Translated at USD to GBP foreign exchange rate of 1.473
4Share price taken fromBloombergProfessional
5Net proceeds from IPO
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RANGER DIRECT LENDING FUND PLC
OVERVIEW AND INVESTMENT STRATEGY continued
Company Performance continued
NAV
(GBP)
£10.60
£10.46
£10.40
£10.20 £10.18
£10.10
£10.00
£9.96
£9.92
£9.80 £9.92
£9.60 £9.72
£9.64
£9.40
£9.20
MAY JUN JUL AUG SEPT OCT NOV DEC

Ongoing ChargesInformation6
Annualisedongoing charges7 0.73%
Performancefee8 0.26%
Annualisedongoing charges plus performance fee 0.99%
Top Ten Positions
(Shown as aggregate Debt Investments acquired from individual Direct Lending Platform)
% of
Value as at Net Asset
Investment/Direct 31 Dec 2015 Value as at
Lending Platform Country Principal Activity (USD) 31 Dec 2015
SME credit lines United States Consumer lending fund 52,723,467 23.04%
Real estate loans United States Bridge loans to real estate developers 51,725,976 22.60%
Consumer loans United States Loans to consumers with improving credit 26,284,284 11.49%
SME loans United States Loans to small/medium size businesses 24,741,064 10.81%
Equipment loans United States Equipment loans to business 8,066,947 3.53%
Consumer loans United States Loans to general consumers 7,232,975 3.16%
Business loans United States Vehicle service contract administration 3,631,041 1.59%
Business loans United States Vehicle service contract financing 3,464,340 1.51%
Receivable credit lines United States Credit lines secured by accounts receivable 2,254,491 0.99%
Invoice factoring United States Spot invoice financing 1,429,129 0.62%
Total 181,553,714 79.34%
6Ongoing charges are set out as a percentage of annualised ongoing charge over average reportedNet Asset Value
7Ongoing charges are those expenses of a type which are likely to recur in the foreseeable future. The Annualised Ongoing Charge is calculated
using the Association of Investment Companies recommended methodology
8Performance fee is calculated based on the terms of the Investment Management Agreement. Further information is provided in note 16 of the
Notes to the Consolidated Financial Statements
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RANGER DIRECT LENDING FUND PLC
CHAIRMAN’S STATEMENT
I am pleased to report the results of Ranger for the period from 10 April 2015 to 31 December 2015. This has been
a period of consistent progress, both in terms of NAV growth and in fund deployment, culminating in December
with a secondary issue of 1,348,650 new ordinary shares at a premium to NAV, enlarging the Company’s share
capital by 10%.
As at 31 December 2015, all of the Company’s assets were deployed, or committed to be deployed, in Debt
Instruments issued by Direct Lending Platforms, less approximately 5% for general fund operations and foreign
exchange settlements. This has resulted in a steadily improving rate of monthly NAV growth and dividend yield over
the period. This pace of deployment was anticipated at the time of the Initial Public Offering (“IPO”) in April, but it is
nevertheless reassuring that it has been achieved and endorses Ranger’s original investment case.
More than 80%of Ranger’s portfolio consists of secured loans across a diverse selection of industries and whilst
most of the assets are in the US, three of the recent investments have been in platforms based outside the US.
There has also been progress towards making tactical equity investments in Direct Lending Platforms and we
expect several to be completed by the end of thesecondquarter of 2016.
Ranger paid its first dividend in December 2015 and now that its capital is effectively fully invested, the Company
will seek to achieve an increase inits quarterly dividends through 2016. As envisaged at the IPO, payment of the
10%targeted annualdividend will be contingent on securing appropriate leverage and discussions arecontinuing
on the structure of an appropriate facility, which it is hoped will be utilised by the end of the second quarter.
Last year’s IPO was capped at £135m to ensure a prudent and timely deployment of the proceeds; an approach
that was justified by the actual pace of investment in 2015. However, the Board remains committed to growing
Ranger and it is clear from discussions with the Investment Manager that the direct lending sector still offers
compelling value and yield. The continuing reluctance of mainstream lenders to offer attractive finance to SMEs
means that there will be further opportunities in 2016 and Ranger hopes to be able to raise new capital to take
advantage of them.
Thank you for your continuing support.
Christopher Waldron
Chairman
11April2016
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RANGER DIRECT LENDING FUND PLC
INVESTMENT MANAGER’S REPORT
Tighter regulations and increasingly restrictive lending requirements have caused many banks to reduce or eliminate
lending to well establishedDirectLendingPlatforms, primarily because of their niche markets, low average loan size,
or small account size. Direct lenders cover multiple secured lending categories such as real estate, equipment
finance, invoice factoring, auto, specialty finance, trade receivables and small business lending. The Investment
Manager believes there is anexceptional opportunity emerging in the vacuum left by retreating commercial banks.
The Investment Manager believes there are attractive, high yield opportunities which can beaccessedby providing
funding through these establishedDirectLendingPlatforms. To take advantage of thisopportunity, the Investment
Manager has identified, negotiated, undertaken due diligence and invested with multiple direct lenders. To further
mitigate risk, the Investment Manager has diversified investments across multiple Direct Lending Platforms and
continues to invest the Company’s assets in a diversified group of lending categories, industries, geographic areas,
durations and funding structures.
Since the Company completed its IPO on 1 May 2015, deployment of capital has continued through a number of
DirectLendingPlatforms in theUS, focused primarily on securedDebtInstruments. The number of platforms has
grown from seven at the time of the IPO to 11 by December. With a continuing focus to diversify the portfolio, three
of the four added platforms provide non-U.S. SME lending. Two of these new sources will enable secured business
loan originations through the international offices of an existing U.S. platform relationship. The third is a new
international platform that focuses on advances against government-backed receivables. The Investment Manager
is currently in negotiations with other new Direct Lending Platforms, all with the potential to meet or exceed the
Company's investment objectives.
At 31 December 2015, all of the Company’s IPO proceeds have been deployed or committed to be deployed, less
approximately 5%for general fund operations and FX settlements. The investments were made into nine categories
and 15 different sub-categories ofDebtInstruments spanning the 11 differentDirectLendingPlatforms. As noted
above, this diverse mix of investment types is intended to mitigate risk. At 31 December 2015, 82%(by NAV) of the
portfolio was invested in securedDebtInstruments (includingloans, cash advances, and receivables financing) to
SME borrowers and 18%of the portfolio consisted of unsecured consumer loans.
In addition to investing in Debt Instruments, the Company may also invest up to 10%of gross assets in the equity
of Direct Lending Platforms and/or organizations serving the direct lending industry. The Company is currently in
negotiations with several possible equity investment opportunities.
Returns from the Direct Lending Platforms are in line with the 12 to 13% targeted net annualised returns to the
Company, NAV growth is in line with expectations, and the Company will seek to provide its Shareholders with
progressively higher dividends now that it has reached full deployment. The Company successfully increased
ordinary share capital by 9.99% via a tap issue of 1,348,650 Ordinary Shares at GBP 10.45 pence (USD 15.79
cents) per share in December.
The Investment Manager selects investments using an active management approach, where each potential
investment is analysed to determine its suitability in meeting the overall investment objectives of the Company.
Unlike passive investing, the Investment Manager may exclude individual investments offered by aDirect Lending
Platform believed to be unsuitable.
After initial launch costs of 1.63%ofgross proceeds of the issue, the Company had a NAV ofUSD15.14 per share
upon listing, with the NAV per share growing toUSD15.41 on 31 December 2015.
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RANGER DIRECT LENDING FUND PLC
INVESTMENT MANAGER’S REPORT continued
The Portfolio Composition as of 31 December 2015 was as follows:
Business LOC Unsecured
27% Factoring 2% 18%
Equipment Loans
2%
Mixed-Use Real
Estate Loans
6%
Single-Family Real
Estate Loans 7%
Consumer Loans
18% Platform Debt
7%
Secured
82%
Commercial Real Estate
Loans 7%
Multi-Family
Real Estate Business Loans/
Loans 13% MCA 11%
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